Environmental regulation and mergers within the eco-industry

This paper considers the welfare and policy implications of a merger between environment fi rms (i.e., firms managing environmental resources or supplying pollution abatement goods and services). The traditional analysis of mergers in Cournot oligopolies is extended in two ways. First, we show how a pollution tax a ffects the incentives of environment firms to merge. Second, we stress that mergers in the eco-industry impact welfare beyond what is observed in other sectors, due to an extra eff ect on pollution abatement e fforts. This might lead to disagreements between an anti-trust agency seeking to limit market concentration which can be detrimental to consumer surplus and a benevolent regulator who maximizes total welfare